Buying Young

Monday April 05, 2021

Wouldn’t it be nice to go back and do some things over again?  I remember graduating college and wondering why my friend, who had recently graduated as well, was buying a small dumpy single family home in the next town over from where we grew up.  I asked him why and he said that his mother (a very successful REALTOR® in town) told him that real estate was a great investment.  I shrugged my shoulders and didn’t give it much of a thought.  With my son graduating college in a few months I would hope he would listen to the same advice I will give him.  Buy when you are young!

Many look at buying a home as an asset.  Some as a liability.  My view is that if you are looking to secure a measure of financial security in your future, buy a home at a young age.  Your liability (rent) is reduced and your monthly cash flow increases (rental income) by choosing to rent out extra bedrooms.  

By definition, buying a home is a liability rather than an asset, as your home doesn’t make you money it costs you money (not talking about a multi family investment property here).  However, if you don’t own a home you are probably renting one, or renting space in one.  That is certainly a liability since you are paying someone else’s mortgage not your own.  Let’s look at everything involved with buying a home at a young age.

Investment:  You have to live somewhere right?  Buying when you are young as a form of investment makes terrific sense.  If you are young and unattached (no spouse or kids) you can rent out other bedrooms and potentially live mortgage free.  Can’t do that if you are renting.  Depending on what is needed for maintenance, taxes and insurance on the house, you could potentially live with little to no cost due to rental income.  Historically homes have appreciated much faster than inflation.  As with any investment there is risk as the market could take a downturn.  However, if it does, you will still have the same monthly mortgage payment and potential rental income (although taxes go up).

Appreciation:  The value of your home changes constantly.  A home is a terrific investment when you are young.  Historically over any 10-12 year period your home will increase in value.  If you live locally and bought your home when the real estate market hit bottom, which was approximately 2006 by 2016 your home will have recovered at least to the original purchase price and will be worth more than what you bought it for by 2018. You will also have been paying down the principal amount of your mortgage creating some equity.   

Bank It:  Every financial analyst will tell you to start saving early.  They will tell you to take advantage of your company 401k match and put money away into your retirement.  By purchasing a home you have another way of saving for retirement.

Building Equity:  When you buy property at a young age, like putting money in the bank, you create equity.  There are a number of people that I know who have used real estate as their primary retirement savings.  They bought rental properties, collected rent and watched the properties increase in value over time.  They weren’t concerned if there was a dip in the market as they were in it for the long haul.   

Rental Income:  There will always be people who want to rent.  Always.  A great way to earn passive income. 

Be Free:  By purchasing a home when young, you force yourself to save and learn responsibilities you may not have otherwise if you were renting.  You learn about the lifespan of a heating system, hot water heater, roof and what you need to do if anything needs to be fixed or updated.  These are all valuable things you will need to know at some point in your life.  Knowing these things at an early age can only help.  I have said many times that I wish I paid attention during automotive class in high school, as I wouldn’t be at the mercy of the mechanic whenever something goes wrong with my car.  

You are Young: The fact is when you are older your time is occupied with a family and children.  When you are young you have fewer responsibilities and can dedicate some of that time to working on your new house.  You may not be able to do that when you get older.

Creating equity when you are young makes fiscal sense.  It’s an opportunity to diversify to gain rental income and positive cash flow, as well as appreciation that beats your money sitting in a bank account making no interest.  Yes, there are risks but if you are in it for the long haul you will come out ahead.

When you ask people who are twenty or thirty years older than you if they would buy real estate at a young age, they’re more than likely to say yes.  While there are certain situations where it makes sense to rent at a younger age, almost anyone who didn’t buy real estate when they were young will probably tell you they wish they did.  

If you have any questions about these real estate terms, or are looking to buy or sell a home or real estate in general, please contact me, John McCarthy at Rowley Realty, 165 Main St., Rowley, MA 01969. Phone: 978 948-2758, Cell 978 835-2573 or via email at john@rowleyrealestate.com

by John McCarthy

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